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CIRCULAR No

CIRCULAR No.39-TC/TCT OF JUNE 26, 1997 PROVIDING GUIDANCE FOR THE IMPLEMENTATION OF DECREE No.05-CP OF JANUARY 20, 1995 AND DECREE No.30-CP OF APRIL 05, 1997, OF THE GOVERNMENT REGULATING IN DETAIL THE IMPLEMENTATION OF THE ORDINANCE ON INCOME TAX ON HIGH-INCOME EARNERS

- Pursuant to the Ordinance (amended) on Income Tax on High-Income Earners approved by the Standing Committee of the National Assembly on May 19, 1994;

- Pursuant to the Ordinance Amending a Number of Articles of the Ordinance on Income Tax on High-Income Earners approved by the Standing Committee of the National Assembly on February 6, 1997;

- Pursuant to Decree No.05-CP of January 20, 1995 and Decree No.30-CP of April 5, 1997 of the Government stipulating in detail the implementation of the Ordinance on Income Tax on High-Income Earners;

The Ministry of Finance hereby provides guidance for their implementation as follows:

I - SCOPE OF REGULATION

1. Subjects of income tax:

The income-tax payers stipulated in Article 1 of Decree No.05-CP of January 20, 1995, of the Government stipulating in detail the implementation of the Ordinance on Income Tax on High-Income Earners (income tax for short), include:

1.1- Vietnamese citizens who are in Vietnam or travel on business or work abroad and generate incomes;

1.2- Other individuals who are not Vietnamese citizens but have settled indefinitely in Vietnam;

1.3- Foreigners who work in Vietnam and generate income, including:

- Foreigners who work in Vietnam at enterprises, economic, cultural, social organizations of Vietnam or foreign countries, at representative offices, branches of foreign companies; individuals who are doing business on their own;

- Foreigners who are not present in Vietnam but earning income generated in Vietnam through technology transfer, copyright emoluments.

2. Taxable incomes:

The taxable incomes defined in Item 1 of Article 2 of Decree No.05-CP of January 20, 1995 and Item 1 of Article 1 of Decree No.30-CP of April 5, 1997 of the Government, comprise both regular and irregular incomes.

2.1- The regular incomes include:

2.1.1- Earnings are in the forms of salary, wage, fee; including over-time salary, night shift salary, 13th month salary (if any), allowances, instead of salary, from the social insurance funds; allowances for lunch and meal between two workshifts;

2.1.2- All forms of monthly, quarterly, yearly bonus and bonuses on the occasion of the national holidays, New Year Days... provided by any source;

2.1.3- The income generated by participation in business associations, executive boards, managing boards, business boards;

2.1.4- Individuals� stable income as indicated in Article 1 of Decree No.05-CP of January 20, 1995, through participation in production and business activities, all kinds of services that are not taxable, including the individuals� income from services in all fields, such as designs, architecture, consultancy services of long-term contracts, vocational training, teaching, examination coaching, cultural and art performances...

2.1.5- Incomes from house rents, electricity, water bills paid by organizations, individuals paying income. Only house rents calculated on the basis of real payment of the organizations and individuals but in no case exceeding 15% of the regular monthly salary, wages and fees. For the individuals who live at the offices, their taxable income shall not exceed 15%. In this case the taxable income shall be based on the house rents or amortization proportionally between the per capita area and the total area of the house.

2.2- The irregular incomes include:

2.2.1 Incomes as presents or gifts in kind sent by organizations, individuals abroad to individuals in Vietnam through income paying organizations such as Post Office or people who voluntarily bring them into Vietnam. The receivers are Vietnamese individuals, foreigners, owners or representatives of private businesses. For presents or gifts in kind which have been declared in the Customs declarations in filling the entry procedures, they are not taxable incomes.

2.2.2- Incomes generated by technology transfers in each contract:

- Transfer of ownership of or right to use industrial property such as inventions, industrial designs, models, useful solutions, logos, trade-marks...

- Transfer of technical secrets, technology projects, know-how process, designs or design models, formulas, sketches, maps, tables, indexes, technical data or other technical expertise and knowledge through sales or transfers (with or without equipment).

- Implementation of the following supportive and consultancy services:

+ Research, analysis, opportunity assessment, pre-feasibility and feasibility studies of investment projects and technology innovation;

+ Technical support, technology options, instructions on equipment installation, trial operations of technologies;

+ Consultancy on technology management, organization and operation of technology process and production;

+ Education, training, improvement of technical, expertise and capabilities of managers, technicians and workers (excluding all forms of specialized training);

+ Provision of services of collecting, analyzing and supplying information on markets, technology, legal matters, natural resources and environment;

- Transfer of the use of and the right to use industrial, trading or scientific equipment (excluding simple imports of equipment and raw materials...).

- In case the present or gift is the technology transfer of industrial ownership as stipulated in Point 2.2.2, the individual who receives that present or gift does not have to pay the irregular income tax.

2.2.3- Incomes from copyright of cultural or artistic works.

2.2.4- Incomes from constructional technical designs, industrial technical designs and other services like consultancy service, training service, brokerage, from marketing bonus or commission...

2.2.5- Incomes from scientific activities such as workshops, researches of all-level topics.

2.2.6- Lottery prizes organized by the Government and marketing lottery in all forms.

3. Income tax on interests of bank deposits, savings, interests of Government bonds, bills and share, is temporarily not collected as stipulated in Article 3 of Decree No.05-CP.

4. Incomes not taxable stipulated in Article 4 of Decree No.05-CP:

4.1. The following earnings shall be defined by the State of Vietnam as income generated in Vietnam; the levels of payment are determined in accordance with the regulation of the competent authority and the current regime of financial management. For foreigners, allowances are determined on the basis of the base salary in the contract and the rate stipulated by the Ministry of Labor, War Invalids and Social Affairs for all subjects.

- Allowances for night working shift (excluding 3rd workshift)

- Allowances for toxity, danger for careers and jobs of which the environments are polluted or dangerous such as mine pits; offshore drill; working on high places of suspension; direct contact with poisonous substances, gas and dust; places with radio-active, radiation above permitted levels;

- Zonal allowances, incentive allowances, special allowances for remote areas, severe climate zones, new economic zones, offshore islands, border areas with difficult circumstances, excluding allowances for foreigners working in areas far from their homelands;

- Seniority allowances for the armed forces: the Vietnam People�s Army, professionals of the People�s Amy, the People�s Security Force and the People�s Police;

- Special allowance for certain jobs such as forensic medicine, surgery;

- Allowance for public servants and other allowances provided by the State Budget, privilegial allowance for persons who took part in revolutionary activities prior to 1945;

- Traveling expenses for official business trips consisting of fares, house rents and per diem. In case of the traveling expenses that are contracted, only the above mentioned expenses are deducted;

- Free meals for some jobs, special jobs, meals served on spot (excluding allowances in cash);

- Social allowances to persons who are entitled to privileged social treatment, such as war invalids, sick soldiers, fallen heroes families, people with meritorious services to the Revolution; aid for unexpected difficulties, allowances for solving social evils;

- Job severance allowance provided by the social insurance funds;

- Allowance for people assigned to the production establishments in line with regulations of the State, including one-time allowances for foreigners to reside in Vietnam;

- Insurance in money from indemnities for life and property;

- Bonus for technical innovations, inventions, international and national prizes organized and recognized by the Vietnamese State (excluding bonuses donated by other organizations and individuals);

- Rewards attached to titles granted by the State such as: Vietnam Hero Mothers, Hero or Heroine of the People�s Armed Forces, Labor Hero, Professor, People�s Teacher, Elite Teacher, People�s Artist, Elite Artist...

4.2- Net interests of the heads of family in private businesses taxable under the Profit Tax Law (their incomes are not included in expenses when determining taxable expenses);

4.3- Regular incomes of foreigners staying in Vietnam for less than 30 days during 12 consecutive months.

II- BASIS FOR TAX CALCULATION

The basis for income tax calculation are taxable incomes.

1. With regard to regular incomes:

1.1- Taxable regular incomes include the monthly average of the total incomes of individuals stipulated in Item 1 of Article 2 of Decree No.05-CP:

1.1.1- For Vietnamese citizens who live in Vietnam or go on official trips, work abroad, other individuals residing in Vietnam: to take the total income of the year, including income earned abroad, to be divided into 12 months (calendar year).

1.1.2- For foreigners who reside in Vietnam upward of 183 days, the total income generated in the year, including income generated in Vietnam and abroad, this average shall be the total divided by 12 months. In case the monthly average income abroad is lower than in Vietnam but cannot be verified, the monthly average income in Vietnam shall be taken as basis for tax calculation for the period they stay abroad.

1.1.3- For foreigners staying in Vietnam from 30 days to 182 days, the taxable income is the total income generated in Vietnam in that period.

1.2- Tax rate of regular incomes shall comply with Item 2 of Article 10 of the Ordinance on Income Taxes and Item 3 of Article 1 of the Ordinance Amending a Number of Articles of the Ordinance on Income Tax on High-Income Earners, Items 2, 3, 4 of Article 7 of Decree No.05-CP and Item 2 of Article 1 of Decree No.30-CP.

2. With regard to irregular incomes.

2.1- Taxable irregular incomes are earnings of individuals according to Item 1 of Article 1 of Decree No.30-CP of April 05, 1997, concretely:

Income in presents or gifts sent to Vietnam from abroad, which are valued each time.

Incomes generated by technology transfers, constructional technical designs, industrial technical designs which are accounted for in each contract value, not depending on the numbers of payment.

2.2- Tax rate of irregular incomes shall comply with the stipulations of Article 12 of the Ordinance on Income Taxes, Article 9 of Decree No.05-CP.

III. ORGANIZATION OF TAX DECLARATION, COLLECTION AND PAYMENT

1. Organization and management of tax collection:

Article 11 of Decree No.05-CP stipulates: Collection of income taxes shall comply with the principle of deducting income at the source. Income paying organizations, individuals or labor managing agencies (called delegated collection organization) shall have to deduct income tax at the source to pay to the State Budget prior to paying incomes to individuals.

In other cases, the tax agency is responsible for directly collecting income taxes.

The delegated collection organizations include:

- Organizations, individuals paying salary, wages, bonus, fees and other incomes of a salary or wage character;

- Agencies managing, recruiting, brokering or supplying labor in Vietnam;

- Agencies managing, recruiting, sending people to work abroad: Ministries, branches, enterprises...

- Diplomatic agencies, representative organizations of Vietnam�s agencies and businesses in foreign countries;

- Goods inspection organizations, returning presents, gifts sent to Vietnam from abroad such as: entry Customs, Post Office, organizations, individuals providing services of transporting presents and gifts in kind;

- Individuals who help bring presents and gifts into Vietnam;

- Organizations and individuals paying for technology transfers or copyright;

- Organizations paying lottery prizes;

- Organizations and individuals paying for services and consultancy;

- Contractors;

In case the managing agency does not directly pay income, but whose function is to manage, control and supervise activities of taxable organizations and individuals, it shall be also considered as a delegated collection organization if it can ensure timely and concentrated collection of income tax;

The delegated collection organization is entitled to get a remuneration proportional to the income taxes it has collected in order to use for covering expenses in tax collection, payments and rewarding those with meritorious accomplishments in organizing tax collections and payments. The rate of remuneration shall be as follows:

- 0,5% (five per thousand) of the collected income tax on regular incomes.

- 1% (one per cent) of the collected income tax on irregular incomes and the taxes collected through foreign contractors.

2. Tax registration - declaration:

2.1- Individuals earning taxable incomes (including regular and irregular incomes) are responsible for income registration, declaration with the delegated collection organizations or tax agency at the locality where they are working.

2.2- The delegated collection organizations must register the income tax collection of their units with the local tax agency where they register license tax payment (in case the delegated collection organizations do not have to pay license taxes, they must register with the tax agency in the locality where their offices are located).

2.3- Individuals earning taxable incomes which are not yet deducted for tax payment at the source, are responsible for registration with the tax agency at the locality where they are working in order to receive the tax registration forms and income tax declarations for individuals.

3. Tax payment and balance sheet.

3.1- With regard to regular incomes:

3.1.1- Tax payment.

Income taxes must be calculated for a whole year but temporarily paid according to the real income every month.

Based on the real income payment of each month, the delegated collection organizations shall deduct the taxable income and make a sum-up table to declare the number of income earners, real income and income taxes that must be paid for each one, the total amount of income taxes that must be paid to the State budget minus the fees they are entitled to in accordance with Point 1, Section III of this Circular. Income taxes must be paid once a month not later than the 15th day of the following month.

Foreigners who come to Vietnam shall not have to pay income tax if their stays are registered in advance as less than 30 days. If the stays are from 30 days to under 183 days, they must pay income tax based on their total income; if the stay is upward of 183 days, they must temporarily pay income tax every month based on their monthly real income and on a partial progressional basis as stipulated in Item 2 of Article 10 of the Ordinance on Income Tax; if their lengths of stay are not determined in advance, they must pay a temporary 10% pending the formal payment of the income tax at the year-end.

Individuals who pay income taxes directly to the tax agency, not through the delegated collection organizations, must monthly come to the tax agency where they have registered in order to submit the tax declaration forms, receive the tax notices and directly pay their income taxes.

3.1.2- Tax statement.

3.1.2.1- Principles of tax statement

Tax statement on regular incomes is made according to the calendar year. At the end of the year or after the end of contracts in the year, individuals must declare their income tax as stipulated below:

- To sum up all sources of income in the year, calculate the income taxes that must be paid according to the income tax statement and submit the statement to the delegated collection organization or the tax agency (in case the individuals pay income tax directly to the tax agency). The deadline for submitting the statement is January 30 of the following year or not later than 20 days after the end of a contract. The delegated collection organization or the tax agency must examine, calculate the income tax that must be paid on the basis of the individual�s income tax declaration form, compare it with the already paid income tax in order to determine the shortfall that must be paid or the overcharge that shall be returned, and draw the overall income tax balance. The delegated collection organizations or individuals paying income tax directly to tax agencies must work with the tax agency to draw the income tax balance not later than February 28 of the next year or 30 days after the end of the contracts.

- In case the individuals work at many places in different periods of time in the year, the taxable monthly income must be deducted to pay the tax at the source and by the end of the year their income taxes must be declared at the place where they last work in the year.

- In case the individuals concurrently work and earn incomes in many places at the same time in the year, they must sum up, declare their income tax at the place where they acquire the largest income or at the most convenient place.

- In case the individuals earn their income in the year by participating in enterprise associations, Managing Board or other regular income separated from income gained at the place of their official work, they must sum up, declare their income together with the income gained at the place they officially work in order to pay their income tax as prescribed.

3.1.2.2- Tax statements of Vietnamese, other individuals residing in Vietnam.

- Individuals who work only in Vietnam in the tax year shall sum up, declare their total regular income in the Calendar Year divided into 12 months to calculate the average taxable income. Basing on the monthly average income and Tax Index stipulated in Item 3 of Article 1 of the Ordinance Amending a Number of Articles of the Ordinance on Income Tax on High-Income Earners, they shall calculate their income tax to be paid for the whole year, compare it with the monthly already paid income taxes, determine the income tax shortfall that must be paid (or the excess that shall be returned).

- In case the individual is assigned to go abroad on short-term study tour, official trips for given periods of the year and receiving only per diem for traveling, food, accommodations, these incomes need not to be declared and are not taxable incomes.

- For individuals working both in Vietnam and abroad and earning income generated in Vietnam and abroad in the year; the taxable income is the monthly average income of 12 months� total income and the income taxes shall be determined according to the following principles:

+ During the time in Vietnam, the monthly average incomes are estimated according to the Tax Index stipulated in Item 3 of Article 1 of the Ordinance Amending a Number of Articles of the Ordinance on Income Tax on High-Income Earners.

+ During the time abroad, the monthly average taxable incomes are estimated according to the Tax Index stipulated in Item 2 of Article 10 of the Ordinance on Income Tax.

- Individuals going on official business or working abroad for the whole year shall sum up, declare the total income of the year and divide them into 12 months to calculate the taxable monthly average income and determine their income taxes based on the Tax Index stipulated in Item 2 of Article 10 of the Ordinance on Income Tax.

In case the individuals have already paid income tax abroad with vouchers supplied by these countries, there may be deduction of the paid tax but this should not exceed the amount of taxes to be paid according to the Tax Index of Vietnam. In case these countries have signed agreements on avoidance of double taxation with Vietnam, the stipulations by these agreements shall apply.

The delegated collection organizations or tax agencies shall examine the declaration form, determine the income tax that must be paid in line with the above-mentioned regulations, compare them to vouchers of income tax payment abroad in order to collect the difference (if any).

3.1.2.3- Tax statements of foreigners.

Income tax balances applied to foreigners� regular income are declared, drawn on the basis of the periods of residence. Individuals have to declare the accurately the number of days they will stay in Vietnam and their taxable income so that the stays and income taxes that must be paid can be estimated. The stay in the first year of income tax payment is determined by totaling all the days to stay in Vietnam within 12 consecutive months beginning from the day of arrival; after the first year of income tax payment, it is determined by the Calendar Year and the day of arrival and departure are counted as one day. In case the individuals are considered residents of the last year, the stay in the following year shall also be included in the period of residence.

- For foreigners residing in Vietnam from 30 days to 182 days in the year of income tax payment: it is required that the total income generated in Vietnam must be declared and the income tax to be paid are uniformly fixed at 10% as prescribed. In case the number of days present in Vietnam is less than 183 days of the year of income tax payment because the job requires repeated entries and exits to and out of Vietnam in the period of two years and more, the income tax indexes are the ones applied to residence subjects and their income taxes must be paid in accordance with the number of months present in Vietnam. Each month shall comprise 30 days.

- For foreigners residing in Vietnam from 183 days and more in the year of income tax payment: it is required that the total income generated in Vietnam and abroad in the year of tax payment must be declared, divided into 12 months to determine the monthly average income and income tax must be estimated, paid in line with the stipulations of Item 2 of Article 10 of the Ordinance on Income Taxes. In case the monthly average income abroad is less than that in Vietnam and can not be verified, the monthly average income in Vietnam is taken as basis for determining the income tax to be paid for the period abroad. In case the time to depart Vietnam definitively is fixed in the year of tax payment, the income taxes are calculated up to the month of departure from Vietnam.

In case the income taxes of the second year (after the first year) of income tax payment include some periods of time counted as the time under income taxes of the first year of income tax payment with commonly fixed 10 % of the tax rate, the income tax applied to this period, in the second year of income tax payment, is still 10% of the tax rate but the time of residence is added to the total days present in Vietnam in the second calendar year (from January 1 to December 31).

3.1.2.4- Income tax payment and settlement.

- The delegated collection organizations must work with the tax agency to draw the balance sheet of the income tax to be collected or already collected of each individual; of the income tax that must be paid or has been already paid to the budget of their units in line with Point 3.1.2.1 of Section III above, be responsible for remitting to the State budget and tax payers within 15 days from the day of drawing the income tax balance sheet. If the individual�s income tax that must be paid is more than that already paid every month, the delegated collection organizations must continue to deduct, collect the individual�s income to pay for the shortfall and remit to the State budget within 15 days after drawing the income tax balance sheet. In case the monthly income tax that has been paid is more than that to be paid in the whole year, the excess tax must be returned by deducting income taxes of the next period but it must be examined and verified by the tax agency.

- For individuals paying income taxes directly to the Tax Department, the shortfall must be paid within 15 days after receipt of the tax agency�s notice. In case the income tax that has been already paid is more than that must be paid, the excess shall be returned by deducting the income tax of the next period, and if no income tax must be paid in the next period, the tax agency shall return the excess to the tax payer.

3.2- For irregular incomes

Taxes on irregular incomes are paid each time of earning income. The delegated collection organization provides income earners declaration forms in order to declare their taxable incomes and estimate the income tax, deduct the income for tax payment before paying back the income. Income tax balancing between tax payers and the delegated collection organizations is implemented right on the declaration forms. The irregular income earners whose income are not deducted at the source must receive the declaration forms, pay tax to the tax agency in the locality where they are officially working. The balance between the tax payer and the tax agency is implemented right on the individual declaration forms.

- Every month, the delegated collection organization must make tables listing the number of people, amounts of income, tax money collected by deducting, fees they are entitled to, taxes that must be paid to the States Budget, repay the surcharge and tax shortfall. The delegated collection organization must pay the deficit to the State Budget within 15 days after the day of payment; in case the income tax is paid in excess, the excess shall be returned by deducting from income tax that must be paid to the State budget next time.

- For income in kind, the delegated collection organizations must collect the tax before paying income.

- For the income that the earners are not present such as money benefited from technology transfers, copy right..., the delegated collection organization, instead of the earner, must declare the income, deduct the income to pay income tax to the State budget before paying the income and notify the tax payer.

- People who help bring presents and gifts from abroad into Vietnam, must declare those income and pay income tax instead of the receiver.

- In case there are incomes generated by industrial designs, constructional technical designs..., the income tax shall be collected by deducting the amount of money received each time and must be declared and paid according to the value of the contracts.

IV- RESPONSIBILITIES OF ORGANIZATIONS, INDIVIDUALS IN COLLECTING AND PAYING INCOME TAX

1. Responsibilities of individuals earning taxable incomes:

Individuals earning taxable incomes must register and declare their taxable incomes through the delegated collection organization or directly to the tax agency in line with instructions in Section III.2. Section III.3 of this Circular. Tax paying individuals are accountable before Law for the accurating and truthfulness of the data declared.

If he/she fails to register or to declare, or if he/she declares falsely or fails to pay or unduly pays income tax, the income earner shall be handled according to Article 21 of the Ordinance on Income Tax. Those who evade paying large amount of tax or relapse in the violation or evade tax with large amounts shall be investigated for penal responsibility in line with law. For foreigners, their exit visas can be revoked or postponed if they do not fulfill their obligation of income tax payment in Vietnam as prescribed in Item 2 of Article 7 of the Ordinance on Exit, Entry, Residence and Traveling of Foreigners in Vietnam.

2. Responsibilities of the delegated collection organizations, the organizations receiving or hosting foreigners:

Organizations (the delegated collection organizations) and individuals paying income for individuals have the following responsibilities and obligations:

- To declare, register with the local tax agency the implementation of tax collection of individuals by deducting income at their units; instruct the income earners to fulfill the declaration procedure, to fill the declaration forms of income tax.

- Based on the list of tax payers and the real income payments for them every month to deduct their income for income tax payments and pay income taxes to the State budget.

- To receive the declaration forms, verify, compare individuals� declared income with the income that must be paid or has been paid in order to estimate the income taxes, confirm the declaration forms of tax payers, make a sum-up list of income taxes and send it to the tax agency.

- To keep records, receipts related to organizing income tax collections: Taxable income, tax estimates, income deductions for taxes, tax declaration, tax collection, payment listing, tax receipt preservation, calculation of the fees they are entitled to, and income tax payments to the State budget.

- To issue receipts of income tax collection from tax payers.

- To implement the reporting regime; balance the income taxes and fees that they are entitled to with the tax agency and present full documentation related to income taxes when required by the tax agency.

Organizations receiving, hosting foreigners who come and work in Vietnam are responsible for guiding foreigners to fulfill all procedures of paying income taxes before fulfilling the exit procedures.

3. Responsibilities of the tax agency:

- To coordinate with administrative agencies of the State and related agencies in verifying and requiring organizations (the delegated collection organizations) and individuals paying income located in the areas under their jurisdiction to implement registrations, declarations of income tax by way of deduction.

- To guide, verify the delegated collection organizations in implementing the registration regime, summing up listings, making estimates of the income taxes, deducting income for tax payment and paying tax to the State Budget.

- To notify the delegated collection organizations of income taxes, tax payment and fees that they are entitled to.

- To organize the implementation of income tax collections of individuals who directly register at tax agency; issue receipts, determine income taxes of tax paying subjects and the delegated collection organizations.

- To impose coercive measures, recollect income tax, fines for activities violating the Ordinance on Income Tax, decide rewards for people who help discover violations and recollect income tax.

- To make regular reports to the higher tax agency.

V - TAX DEDUCTION, TAX EXEMPTION

1. For the cases of tax deduction and exemption mentioned in Item 1 of Article 20 of the Ordinance on Income Tax.

Tax payers who meet natural disasters, war, accidents causing losses of property and income affecting their living standard, are eligible for tax deduction or exemption in that year, depending on the extent of the damage. The tax deductions are equal to the value of damage and taxable income in that year but not exceeding the total income tax of the whole year.

Procedures of and authorities in considering tax deduction or exemption:

- Individual tax payers shall make tax deduction, tax exemption applications certified by the local authority (the People�s Committees of commune, village) or by the income paid office, and send them to the local tax agency at which the income paid office registers; The tax deduction, tax exemption applications must clarify the reasons, damage (attached to vouchers to prove), amount of income taxes that must be paid and amount that is asked to be deducted or exempted;

- The tax agency shall verify, consider and issue decisions on tax deduction or exemption or propose to the higher tax agency for making decisions according to the following delegation of authority:

+ The Director of the Tax Department decides the tax deduction and exemption of less than 5 million VND per year;

+ The General Director of the General Department of Taxation decides tax deduction and exemption ranging from 5 million to 100 million VND per year;

+ The Minister of Finance decides the tax deduction, tax exemption of more than 100 million VND per year.

- During the time the competent tax agency is considering tax deduction and tax exemption, the tax payer must pay full income tax stipulated in the Ordinance. When the decisions of tax deduction or tax exemption are issued, the difference shall be returned to the tax payer or deducted for the next collection by the delegated collection organizations in accordance with the decisions of the tax agency. In case the individuals pay tax directly to the tax agency, the tax deduction or tax exemption shall be returned by deducing the tax that must be paid next time or by the State budget in accordance with the decisions of the tax agency.

2. With regard to the cases of tax deduction or tax exemption stipulated in Item 2 of Article 20 of the Ordinance on Income Tax; Item 2 of Article 18 of Decree No.05-CP.

Organizations, individuals that have applications sent to the Ministry of Finance for tax deduction and tax exemption must explain clearly the reasons and the State�s economic, political, social interests related to tax deduction, tax exemption for the tax payers. The Ministry of Finance shall check the documents and shall submit them to the Prime Minister for consideration and decision on concrete cases.

VI - HANDLING OF VIOLATIONS AND REWARDS

1. Violations of the Ordinance on Income Tax shall be handled as stipulated in Article 21, Article 22, Article 23 and Article 24 of the Ordinance on Income Tax on High-Income Earners. Violations of administrative regulations of the Ordinance on Income Tax are liable to concrete fines described in Decree No.22-CP of April 17, 1996 of the Government on Administrative Sanctions in the Field of Tax and Circular No.45-TC/TCT of August 1, 1996 of the Ministry of Finance providing guidance for the implementation of Decree No. 22-CP.

For organizations and individuals that pay income, help bring presents and gifts from abroad into Vietnam, fail to declare, register or list their taxes, or fail to deduct income taxes before paying income, therefore causing deficits in individual income taxes, they must pay compensations for the deficits to the State budget and shall be fined as stipulated in Article 21 and Article 22 of the Ordinance on Income Tax. The compensation of deficits and fines shall be taken from the income of income paying organizations, individuals and not included in the expenses for determining the taxable revenues.

2. People who contribute to discovering violations of the Ordinance on Income Tax, help the tax agency to recollect the tax shall be rewarded as follows:

- Individuals who discover cases of evading tax payments, notify the tax agency through direct notices, official notices, letters, applications... clarifying names, addresses of the tax evading individuals and organizations.

- After receiving notices, the tax agency must immediately verify and calculate income taxes of the income paid individuals and organizations, make minutes to confirm taxes evaded and notices of tax payments together with decisions of fines to require the tax evading individuals and organizations to pay to a temporary account of the tax agency.

- Based on the redeemed amount of tax and fine paid to the temporary account, the tax agency shall decide to grant rewards to organizations and individuals who help discover the cases and coordinate with the tax agency. The amount of reward shall not exceed 5% (five percent) of the redeemed amount of tax paid to the State budget and the reward to an individual shall not exceed 300,000 VND per case and 900,000 VND per month.

- The remainder money after rewarding must be remitted to the State budget.

VII- IMPLEMENTATION

1. This Circular becomes effective from February 18, 1997. As for regular incomes the taxes to be paid are calculated according to the new tax rate applied to the incomes of Vietnamese citizens and other individuals residing in Vietnam generated since February 1997. For the income in presents and money sent from abroad to Vietnam, individuals who receive money from the income paying organizations and individuals from February 18, 1997, do not have to pay irregular income taxes; if the irregular income taxes have been already paid, the tax agency (that collects income taxes) shall return them by deducting income taxes that must be paid of the income paying organizations and individuals.

This Circular replaces Circular No.27-TC/TCT of March 30, 1995 of the Ministry of Finance providing guidance for the implementation of Decree No.05-CP of January 20, 1995 of the Government on specific guidance for the implementation of the Ordinance on Income Tax on High-Income Earners.

2. The agencies which are assigned to manage, train, recruit laborers are allowed to spend a maximum of 8% of the income of the laborers for management, training and recruitment activities. This expenditure is managed and used according to the annual plan and must be balanced by the end of the year as regulated in the current financial regime. In case the expenditures have not been fully spent, the remainder must be paid to the State Budget and, at the same time, the rate must be decreased to a degree suitable to the spending plan of the next year. Except the expenditure calculated according to the above mentioned rate, all Ministries, branches and organizations managing and using labors are forbidden to regulate the income of the laborers in any form.

In case of recommending or recruiting labors on the basis of delegated power, the expenditure is collected only once as stipulated in Point 2, Section II, Circular No.19/LDTBXH-TT of December 31, 1990 of the Ministry of Labor, War Invalids and Social Affairs providing guidance for the implementation of Decree No.233-HDBT of June 22, 1990 of the Council of Ministers (now the Government) issuing labor regulations for enterprises with foreign investment.

3. The incomes, that are committed to separate income taxes and tax exemption, are taxed as regulated in the international documents and treaties which Vietnam has signed or acceded to.

4. Tax agencies at all levels are responsible for publicizing, guiding the tax payers and the income paid individuals and organizations (the delegated collection organizations) in strictly implementing the regulations of the Ordinance, Decree and Circular providing guidance on income taxes.

In the course of implementation of this Circular, any problems that arise should be timely reported by the organizations, individuals and localities concerned to the Ministry of Finance (The General Department of Taxation) for consideration and solution.

The Minister of Finance

NGUYEN SINH HUNG